The stock fell 8.9 per cent in morning trading, putting it on course for its worst single-day performance since March 2020 as investors reacted to the disappointing results.
The latest setback involved del-desiran, an experimental treatment being developed for myotonic dystrophy type 1, a genetic disorder that can cause progressive muscle weakness and wasting.
Novartis said its global Phase III HARBOR study failed to demonstrate a statistically significant improvement over placebo in patients’ ability to open their hands.
The company said it was now reviewing the complete trial results before deciding how to proceed with the drug.
“Novartis is evaluating the full HARBOR dataset and will engage with health authorities to determine the most appropriate development path for del-desiran,” the company said in a statement.
Third setback in a week
The del-desiran failure comes at a particularly difficult time for Novartis, following two other major setbacks involving its drug development pipeline.
Just days earlier, the company announced that pelacarsen, an experimental cardiovascular drug, had failed to reduce the risk of cardiovascular events in a late-stage trial.
A week earlier, Novartis said it had paused eight clinical trials involving rap-cel, an experimental cell therapy, following the deaths of three patients.
The sequence of disappointing announcements has raised concerns among investors about the strength of Novartis’ pipeline and its ability to maintain growth as some of its established medicines approach patent expiry.
Del-desiran was one of three antibody oligonucleotide conjugate therapies added to Novartis’ neuromuscular portfolio through its acquisition of Avidity Biosciences for approximately $12 billion last year.
The failure of the drug has consequently intensified scrutiny of that acquisition and whether it will deliver the growth Novartis expected when the deal was struck.
Novartis defends development strategy
Despite the latest setback, Novartis said it remained committed to developing new treatments for patients with serious neuromuscular diseases.
“Developing therapies for a complex disease like [myotonic dystrophy type 1] remains challenging, and setbacks are part of scientific progress,” Shreeram Aradhye, president of development and chief medical officer at Novartis, said.
“As we continue to evaluate the full HARBOR dataset, we remain committed to identifying the most appropriate development path for the del-desiran program and advancing innovative approaches for people living with [myotonic dystrophy] and other serious neuromuscular diseases.”
The company also maintained its longer-term financial guidance, saying it still expects sales to increase by an average of 5 per cent to 6 per cent annually through 2030.
However, analysts questioned whether Novartis could achieve that target without making significant acquisitions to replenish its pipeline.
Analysts question growth outlook
Jefferies analysts said the latest setback could make Novartis’ growth ambitions increasingly difficult to achieve.
Novartis’ growth target “will likely be perceived as unattainable without further M&A, which is now questionable again,” the equity research team said in a Tuesday note.
The concern is particularly significant because the company has increasingly relied on acquisitions and business development to secure future growth and compensate for potential revenue losses from patent expirations.
Novartis did receive some positive news last week when a late-stage trial of remibrutinib, an experimental treatment for relapsing multiple sclerosis, showed “a clinically meaningful delay in disability progression”.
But Jefferies analysts said the positive remibrutinib result might not be enough to restore investor confidence in the wider pipeline.
They said it would be difficult to “get confidence” in the programme without positive results from del-desiran and del-brax, another experimental drug. More definitive evidence for del-brax is not expected until Phase III data becomes available in 2028, according to the analysts.
“As a result, [business development] & M&A likely remain a key part of the story for securing management’s longer-term mid-[single-digit] growth aspiration, with management’s ability to conduct larger deals now likely to remain under scrutiny,” they added.
$12bn Avidity deal under scrutiny
Barclays analysts highlighted the broader implications of the del-desiran failure, noting that del-desiran and pelacarsen had represented an estimated $5 billion in risk-adjusted peak sales opportunities.
More importantly, they said, del-desiran was effectively a test of whether Novartis’ $12 billion acquisition of Avidity Biosciences would deliver the expected returns.
The drug’s failure has therefore cast fresh doubt on the strategic value of the acquisition and on Novartis’ ability to replace revenue that could be lost as key medicines face patent expirations.
Barclays analysts said they expected Novartis shares to “materially [underperform]”, adding that the company’s roughly 20 per cent premium to the pharmaceutical sector could now come under pressure.
For investors, the latest development has transformed what was already a challenging week into a significant test of confidence in Novartis’ research pipeline, acquisition strategy and ability to deliver its longer-term growth ambitions.